1. You are correct that the true indciator is YOY earnings growth and YOY earnings growth has been 17% for this quarter when the expected was average of 14% YOY growth. These are just solid solid earning numbers. More than that companies are sitting on piles of cash and they can pump that liquidity in to do stock buybacks/mergers etc.
2. I am not comparing DOw component or SP500 company prices as compared to 2000 values. I can say in the same way to compare to bottom values in 2001 and look at the amazing returns. But I am talking about the current July rally and earnings as well as gains by most SP500 companies, indciate this rally has been broad based.
3. Companies do stock buybacks from the profits that they have earned and if stock buybacks are announced by a company then analysts account that in their estimates. More than trying to push EPS aove estimates, the main reason for buybacks by big corporates is investing in itself when company considers the price is right (takes care of stock option grants to employees, etc). Now, same goes for mergers and are mainly done to buy a competitor or a company doing poorly that can be rejuvenated. Options are included as expenses in earnings as one time expenses in most companies and hence are accounted for in the EPS number. Investors look at the cash flow that a company generates and the capital that it is sitting on and hence potential for buybacks/mergers. The balance sheet, cash flow, etc is normally all priced in the share value.
4. Companies do give conservative forward guidance which is the natural thing to do. However, markets are such tough tough crowd that you can get hammered for beating estimates but not giving a forward guidance that investors expected. In addition, if you invested in growth company that gave a conservative forward guidance, the company can get hammered for slowing growth fears. Also investors (especially institutional investors) know all these little tricks of companies. Whole concept of beating estimates is that current sharevalue represents company’s growth prospects, cash flow, balance sheet, etc and are hence already priced in. Any +ve surprise is then priced positively in share value and vice versa.
